Dell-Perot Systems: an expensive Texas tie-up

Posted by on September 21, 2009

By Brenon Daly

To understand just how richly Dell’s bid values Perot Systems, consider this: the last time shares in the services company traded at the level Dell is paying, Dell’s own long-slumping stock was changing hands above $40. That was back in early 1999, just after Perot Systems went public. (As a side note on the IPO, five banks are listed on the prospectus; Goldman, Sachs, which advised Perot in Monday’s sale to Dell, is not one of them.) By early 2000, shares of Perot had dropped to below $20, and never again pierced the $20 level, much less the $30 for each share that Dell is handing over in its proposed $3.9bn purchase.

The offer means Dell is paying a price for Perot that the company hasn’t seen on its own in a decade. Put in numbers, Dell’s bid values Perot at 68% above the closing price in the previous session, and some 78% higher than the average price of shares over the prior 30 trading days. For its part, Dell stock was bouncing around $16 on Monday, having dipped about 4% on the announcement.

And when compared to a similar move by a hardware vendor to bolster its services arm, Dell’s planned purchase of Perot comes in at about twice as expensive as Hewlett-Packard’s $13.9bn reach for EDS in May 2008. Dell is paying 1.4 times trailing 12-month (TTM) revenue and 12.9 times TTM EBITDA for Perot. That compares to HP’s acquisition, which valued EDS at 0.6 times TTM sales and 5.7 times TTM EBITDA.

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